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Interpreting the Forward Premium Anomaly

  • David K. Backus
  • Silverio Foresi
  • Chris I. Telmer

One of the central issues in international finance concerns the forward premium anomaly: changes in spot exchange rates are inversely related to the premium of forward rates over spot rates. The authors construct a numerical example of a theoretical economy with this property and discuss its potential as an explanation of the anomaly.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 28 (1995)
Issue (Month): s1 (November)
Pages: 108-119

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Handle: RePEc:cje:issued:v:28:y:1995:i:s1:p:108-119
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